The green shoots of TCFD reporting - An analysis of the first 50 companies to report under the Listing Rules

Based on a growing consensus that climate risks can pose financial risks, the Financial Stability Board launched a taskforce in 2015 to improve and increase reporting of climate-related financial information. Two years later, the Taskforce on Climate-related Financial Disclosures (TCFD) framework was published for companies to report against. The intention behind the TCFD framework is to provide investors, banks, and other financial institutions with more detailed information about climate-related risks and opportunities. The hope of many stakeholders is that such disclosures will help build trust in the transition to a net zero economy by providing more insight into corporate responses to climate change.

Although already widely used on a voluntary basis, the UK is the first major economy to mandate climate-related disclosures in line with the TCFD framework which came into effect for premium listed companies from 1 January 2021 under the Listing Rules. This is a significant moment in climate-related reporting.

And with the Exposure Drafts of the first standards on climate and sustainability reporting from the International Sustainability Standards Board (ISSB) recently published - which draw on the TCFD framework - the rigour required in companies’ disclosures is set to increase. This makes the new TCFD reporting requirements not only an important milestone, but also a test case for the challenges that lie ahead.

It’s not just regulatory pressures that businesses face. Investors are increasingly looking for information on how ESG factors impact the businesses they invest in so there will be significant interest in this first batch of TCFD disclosures.

This page sets out PwC’s findings from a review of the first 50 disclosures by FTSE 350 companies under the new Listing Rules reporting requirement.

Our findings

ESG reporting was already a growing part of FTSE 350 reporting in the UK and, with the new TCFD disclosures, our research shows that ESG information - including climate change disclosures - now constitutes around 30% of the length of the average strategic report (up from 20% last year). 78% of companies we reviewed now specifically mention ‘climate change’ in their financial statements - a significant increase on last year’s 22% of the FTSE 350 we observed last year.

Companies are responding in significant ways to the pressure being exerted by investors, regulators and other stakeholders. But we found that many can do a better job of spelling out the key messages in critical areas of the TCFD framework. In particular:

Risks and responses

Many companies could be clearer about their assessment of the most important climate-related risks and opportunities for their business, and how they are responding to them. Climate change affects companies in different ways, over different time periods and to different extents, and the TCFD framework recognises that one size does not fit all when it comes to reporting. The assessment of risks and opportunities should drive climate-related disclosures but too often the connections are not being made.

28% of companies link their metrics and targets with climate-related risks and opportunities

Financial impact

Most companies could provide better information about their estimates of the actual or potential financial impacts of climate change. There is little or no quantification of the issue in many reports, especially considering that the financial disclosures are so fundamental to the TCFD framework. And when financial information is given in the financial statements it is often a brief statement that climate change is ‘not material’.

8% of companies quantify the estimated financial impact of climate risks in their strategic report

Listing Rules requirements

We also looked at how companies are dealing with the new Listing Rules requirement to report on the extent to which disclosures are consistent with the TCFD framework. We found a range of approaches to this, with some including a separate ‘consistency statement’ while others integrate the information within the TCFD disclosures themselves. Whatever the approach, many companies need to be clearer on the areas where they are or are not yet consistent with the framework, which can involve considerable judgement.

50% of companies acknowledge in their reporting that they have more work to do on their TCFD disclosures in future periods

The requirement by the FCA Listing Rules to report against the TCFD framework, on a broadly ‘comply-or-explain’ basis, was always going to be challenging, given that the TCFD framework was not designed as a set of compliance criteria and relies, for instance, on significant judgement and supporting guidance. However, as market practice develops we hope the observations in this report will help companies to get more from the TCFD framework, and at the same time comply with the technical requirements, while providing shareholders and other stakeholders with the information they need.

Contact us

Mark O'Sullivan

Mark O'Sullivan

Head of Corporate Reporting, PwC United Kingdom

Tel: +44 (0)7730 304057

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